The Day the Dow Dived

It was not particularly loud or chaotic at the suburban Kansas City headquarters of BATS, the third-largest exchange in the country, right behind New York’s and Nasdaq. “Is it Greece? What’s going on?” Joe Ratterman, the CEO, asked aloud.

At Goldman Sachs, gossip was floating around the investment management division that Citigroup had caused the fall with some sort of mammoth trading error. Silly Citigroup! An executive at another bank heard the same thing and told a newspaper reporter. CNBC heard it, too, and put up a story saying that a Citi trader may have inadvertently pressed a “b” for billion, not a “m” for million, in a trade that may or may not have involved Procter & Gamble. This was given a name: It was called the fat-finger theory. And the fat-fingered investigation had a focus: CNBC said there was a strange sale of 16 billion E-mini S&P 500 futures, traded on the Chicago Mercantile Exchange.

In Chicago, alongside the S&P 500 futures pit, a 38-year-old squawk-box broadcaster named Ben Lichtenstein, a man with a stadium-size voice of gravel and amphetamines, narrated the dive as it happened. “Guys this is probably the craziest I’ve seen it down here!” he shrieked. On a recording that was immediately passed around on Web sites like Zero Hedge, he narrated the fall number by number. It was pandemonium. “This will blow people out in a big way that you won’t even believe!” he screamed in between a stream of numbers. After work, he went to his daughter’s soccer practice, then his son’s baseball practice, and then went out with a client.

THE NEXT MORNING, the Chicago Mercantile Exchange confirmed that Citigroup’s activity did not appear to be irregular or unusual. And by late Friday, the Obama administration had sent out word that a fat finger did not, in fact, start the biggest collapse in Dow history.

So what did? Traders had been itchy about the Greek debt crisis and the British election-but nothing astounding had happened that afternoon with either. Was it hackers or terrorists? Ms. Schapiro said Tuesday that it didn’t look like it.

The New York Stock Exchange blamed Nasdaq. Nasdaq blamed the New York Stock Exchange. Then Nasdaq blamed the Chicago Mercantile Exchange.

Was it the machines? On Friday, both The Journal and The Times had articles about high-frequency trading, the gargantuan but relatively new industry that uses algorithms to buy and sell. When the market falls to a certain level, both articles said, high-speed firms’ computers are programmed to sell automatically to protect against more and more losses. The firm Tradebot Systems, another enormous Kansas City-based firm, even said that its computers shut down entirely. A “computer glitch at even just one firm could trigger a wave of selling that sets off huge losses across financial markets,” a Journal story about the New York Stock Exchange’s upcoming 400,000-square-foot high-speed hub in suburban New Jersey said last year. The new hub was nicknamed Project Alpha.

By Sunday, Senator Chris Dodd was on Face the Nation, complaining about “very fancy computers that can move in microseconds.” At the book party the next night, Mr. Griffin, the hedge fund manager, held up a glass of Champagne with Maria Bartiromo to toast the Bremmer and Roubini books. “I think that it’s much easier,” he said in a conversation afterward, “to try and blame faceless computers.”

The next day, another Journal article said that a $7.5 million trade for 50,000 options contracts from a hedge fund advised by Nassim Taleb, famous for the book Black Swan: The Impact of the Highly Improbable, “may have played a key role in the stock-market collapse.” It did not mention that the paperback version of Mr. Taleb’s book was released that morning.